The first question I was asked after being installed as chairman of the NAHB was about the outlook for housing, and given the events of recent years, I expect to hear that question often in the months ahead.
Although it’s difficult to determine exactly how housing will fare this year, I am generally optimistic about the prospects for 2011 and hope that it will mark the start of better times for our beleaguered industry.
One reason for optimism is pent-up demand due to lagging household formations. Millions of younger people are waiting for better economic conditions before they start a family or move out of mom and dad’s basement to get a place of their own. As the economy improves, they will get off the sidelines and become new customers.
Likewise, discretionary buyers who have been waiting for the economy to improve before they make big decisions about housing are likely to come back into the market. Prices are low relative to consumers’ incomes, and interest rates are near historic lows. There has rarely been a better time to purchase a home, and as the economy improves, increasing numbers of consumers are likely to enter the market.
Another cause for optimism is the renewal of the 2001 and 2003 Bush-era tax cuts. The tax bill is generally good news for housing because it will help provide stability in a still erratic market, will provide tax relief for all working Americans, and will spur job growth. It extends lower income tax rates through 2012 and provides relief from the alternative minimum tax for about 21 million middle-class households and small businesses, including many builders.
Unfortunately, the tax legislation did not renew the Low Income Housing Tax Credit exchange, which allows state housing finance agencies to trade part of their tax credit allocation for grant dollars to support affordable housing. We were very disappointed that it was not continued, and the NAHB is leading an industry-wide effort to get Congress to quickly extend this important provision.
Although the outlook for housing is generally improving, we do face some troubling issues. Chief among them is the lack of AD&C financing. Restoring the flow of funds to new-home construction is an NAHB priority, and we will continue our intensive ongoing efforts to make AD&C credit readily available to builders. Likewise, our efforts to ensure that appraisals accurately reflect the value of new homes will continue until the problem is resolved.
Federal deficit reduction efforts also could pose a danger to housing. The deficit reduction panel appointed by the president recommended or implied that virtually every housing provision in the tax code should be eliminated. As a result, important housing measures such as the mortgage interest deduction, the capital gains exclusion, and the deductions for property taxes and interest on home equity loans could be in the crosshairs when Congress sets out to trim the deficit. The NAHB launched a new website www.SaveMyMortgageInterestDeduction.com late last year to address the issue, and we are prepared to do whatever is necessary to defend the housing-related provisions in the tax code.
Overall, it appears that housing is on the upswing, and better times are on the horizon. I am looking forward to the day when the housing industry is again the economy’s engine of recovery and growth and our members are busy constructing the homes that help define our nation.